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Military Retirement Needs Reform

Military pensions for high-ranking officers are going up significantly, according to a USA Today article. Due to a change in the Defense Authorization Act of 2007 that was intended to dispel concerns about losing too much of the top brass during wartime, pensions increased by as much as 63 percent for some officers. As a result, the highest pension that an officer can receive ($273,000 for a retired four-star officer with 43 years of service) is now higher than the most an active duty officer can make, including allowances.

The military retirement system overall has been looked at as a means for reform, especially in light of the defense spending cuts that are required. Last month, Defense Secretary Leon Panetta recognized the need for military pension reform, calling for a commission that would look at changes to benefits.

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Source: USA Today

The benefits mentioned above are not the norm, but pensions are very generous. For those who qualify, they receive at least half of the pay in their highest three working years, and they can receive benefits as early as their late 30s while many of them are working another job in the private sector. The average benefit is about $24,000 and it will rise to about $32,000 in a decade.

Reforming the military retirement system isn't about punishing military members, but about fixing problems with the system in ways that can also have positive budgetary impact. Since the vesting period for pensions is 20 years, most military members do not even receive benefits (only about 17 percent actually do, according to the Defense Business Board).

Also, under the current system, career paths are too often shaped by the incentives that the system provides. Military personnel who serve into a second decade are encouraged to stay on longer than they would otherwise since they would face getting no benefits for a long period of service, even if they had been in the military for 19 years. For those who reach the 20-year mark, the system encourages them to leave the military soon after, when they can collect a pension at a young age (as early as their late 30s) while being employed elsewhere.

Solutions for military retirement would deal with the ironclad vesting period, ensuring that more military members can receive pensions and that personnel decisions are not made for the sole purpose of qualifying for benefits. As we said in our paper about reforming military and civilian retirement programs:

In light of the painful solutions we face, it is important that we bring the costs of federal military and civilian retirement under control. While many of the policies discussed in this paper would produce significant budgetary savings, just as importantly they would help correct inequities or flaws in the current federal retirement system while ensuring that federal and military retirees continue to have more generous retirement benefits than those typically received by employees in the private sector.